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Another policy easing likely after Budget 2016, says Citi

Singapore’s soft economic outlook has left room for another easing by Monetary Authority of Singapore (MAS), according to a report by Citi.

Although far from certain, Citi argued that weak economic data may still prompt the MAS to loosen policy at its April meeting.

This is particularly because the central bank cannot rely on the upcoming Budget 2016 to boost economic sentiment, while policymakers have become increasingly more cautious after a spate of weak macroeconomic data.

“While we expect cost cutting measures targeted at SMEs to restore competitiveness to be announced on the Mar 24th Budget, we expect a neutral to slightly negative fiscal impulse given the constraints imposed by the Balanced Budget Rule. With the economy not (yet) assessed to be in recession, fiscal bullets will likely be saved for rainy day,” Citi said.

“If we are correct in our assessment of a neutral to even negative fiscal/macroprudential policy stance, then should policymakers decide that an overall easier policy mix is justified, the burden may still have to be borne by monetary policy,” Citi noted.

“This is not a foregone conclusion however, as MAS may view the Oct easing as having purchased insurance against future downside surprises, while the marginal benefit from a slope reduction may be limited when weighed against the costs of higher inflation and interest rates. Ultimately the likelihood and aggressiveness of any MAS easing will hinge on whether the downgrade in MAS’s growth outlook is sufficiently severe to outweigh these counter-arguments,” the report added.

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